#055 - Shanker Singham - How to Fix the UK Economy

Summary

The Peter McCormack Show #055: Shanker Singham – How to Fix the UK Economy

Date: March 4, 2025
Host: Peter McCormack
Guest: Shanker Singham (trade and competition policy expert)

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Episode Overview

This episode centers on diagnosing the root causes of the UK’s ongoing economic malaise and exploring what it would take to genuinely revive growth, prosperity, and opportunity for everyday people. Guest Shanker Singham—renowned for his work on competition, trade, and growth—breaks down why the UK is falling behind its peers, the true impact of government decisions over the last 25 years, and the practical reforms needed to restore economic optimism. The discussion is candid, empirical, and at times, deeply skeptical of political will or competence—yet ultimately optimistic about what’s possible.

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Key Discussion Points & Insights

1. Why UK Growth Feels Broken (00:00–06:43)

• GDP Per Capita vs. GDP:
  Singham opens with the critical distinction between “headline” GDP growth and GDP per capita, underlining that ordinary people only feel improvement when GDP per capita rises.

  “What you actually feel as a regular person is GDP per capita. That's what you feel in your pocketbook. And that's going down…” (04:40)

• The Dangers of Economic Contraction:
  The psychological toll of stagnation and contraction has left Britain demoralized, yet it’s policy-driven, not inevitable.

  “We don’t have these feelings because it’s just the way of the world. We have these feelings because of what our governments have done to us in the last 25 years. Deliberately. Deliberate choices.” (00:51, 81:46)

• The Power of Compounding (and Neglect):
  Losing even 1% in growth annually leads to radical divergence; the US would have been smaller than Mexico if its historic growth rate had slipped—a lesson for the UK and its current trajectory. (05:24)

2. Policy Failures: Tax, Regulation, and Competition (06:43–14:20)

• High Taxes and Regulation:
  UK policies have incrementally destroyed growth, mainly via over-taxation and the unintended consequences of well-meaning but anti-competitive regulation—especially in the environmental and financial sectors.

  “It’s a lot easier to destroy [wealth] than it is to create… competition is the biggest force we know that actually allows that growth to take place.” (10:29)

• Regulatory Capture:
  Much regulation exists for incumbent interests, not consumers or society, stifling disruptive innovation (including in banking and Bitcoin).

  “A lot of that regulation is in place because large incumbent companies want it there… You see this in banking. You see this in many, many things.” (08:11)

3. Measurement Deceptions: GDP vs. Reality (14:20–18:20)

• GDP vs. GDP Per Capita:
  UK growth headlines can be misleading due to the rapid population rise (immigration) and government spending—including money creation—masking lack of real private sector gains.

  “You can massage a GDP figure…but really the only figure people should care about is per capita.” (17:39)

• Private vs. Public Sector Distinctions:
  True growth must be tracked in private sector activity, not just aggregate numbers. (17:53–18:20)

4. Entrenched Interests, Policy Inertia, and the Growth Commission Blueprint (18:20–31:11)

• Why Obvious Solutions Aren't Enacted:
  McCormack repeatedly asks why politicians don’t simply enact what works. Singham replies that incumbent power—from unions to big business—blocks reform, favoring the status quo even at the country’s expense.

  “What is the barrier to making these what seem obvious decisions?” (23:33)
  “All of these things are driven by different kinds of incumbent status quo powers…” (25:50)

• Labour Market Inflexibility:
  Proposed Labour reforms will further entrench job market rigidity, discouraging small businesses from hiring and undermining growth. (24:02)
• Subsidies and State-Driven Energy Policy:
  Direct subsidies distort markets and reduce wealth. Efforts like Great British Energy or excessive renewable subsidies crowd out competition and ultimately hurt consumers. (28:41)
• Growth Commission Findings:
  • Planning reform alone could contribute one-third of projected gains; current policies outside of planning changes project -8% GDP per capita over twenty years. (14:18)
  • Even a 10% competition increase can add 5.5% to GDP per capita—a huge difference over time. (11:49)

5. Competition, Regulation, and International Experience (31:11–43:57)

• Incumbency and Regulation—Case Study in Mexico:
  Personal anecdotes (AT&T vs. Telmex) illustrate how incumbent firms manipulate the system, regardless of country.

  “Firms will do what firms will do in the regulatory environment they find themselves in. It’s not their fault… What we have to do is change the regulatory environment.” (33:43)

• Evaluating Regulation:
  Advocates a new framework: every regulation should be explicitly assessed for its effect on competition, trade, and property rights. (37:01)
• Harmonisation vs. Competition:
  Forced regulatory harmonization (as in the EU) often empowers big business and dulls dynamism; UK should instead embrace regulatory competition (e.g., Irish low corporation tax). (39:52)
• Mutual Recognition:
  Instead of copy-pasting EU or other regulatory environments, countries should recognize differing standards that achieve the same objectives, supporting innovation and competition. (41:17)

6. Brexit, Regulatory Independence, and Missed Opportunities (46:15–62:09)

• Brexit Frustrations:
  • The UK has not yet seized opportunities for regulatory reform; it ported all EU law into domestic law and even made some areas less competitive post-Brexit. (60:10)
  • The greatest risk is “locking yourself back in to the same regulatory environment you just left”—with none of the upsides. (62:09)
• Politics vs. Economics:
  Political expediency trumps sound economics time and again, and policy-making is rarely guided by what would actually drive meaningful growth for citizens.

  “The problem that gets in the way of good economics is bad politics.” (63:41)

7. Fixing the Future: Evidence-Based Policy and External Pressures (49:15–67:55)

• The “Growth Commission” Models:
  Thirty years of modeling confirm that domestic reforms (especially boosting competition) are three to four times more powerful than trade liberalization alone. (51:10)
• Politicians Lack Will—Not Data:
  Experts repeatedly advise governments, but ideological and incumbent interests ensure little changes. (65:32)
• External Leverage:
  Sometimes, countries need outside incentives (as Mexico used NAFTA/US) to finally implement reforms. The UK might similarly need “external agents” like a US trade agreement to force pro-growth changes. (66:28)

8. Trump, Tariffs, and Global Trade Policy (67:55–78:49)

• Trump’s Tariff Doctrine: Four Pillars (68:24–73:03):
  1. Threat as Leverage (e.g., to solve non-trade issues)
  2. Revenue Generation: Small tariffs for budget purposes—a unique power only the US can wield
  3. Reciprocal Tariffs: Punishing distortionary, anti-competitive policies abroad
  4. Property Rights Protection: Enforcing IP via trade penalties
• The Real Impact:
  If the world measures up to “level playing field” standards—reciprocating openness and dismantling anti-competitive barriers—everyone benefits. Otherwise, arbitrary tariffs could destroy wealth at historic scales. (73:06)
• Re-evaluating Free Trade:
  The post-Cold War assumption that trade liberalisation would automatically yield democracy and prosperity was wrong—liberalisation must be paired with internal reforms in property rights and competition. (73:06)
• Advice for Engaging with Trump:
  Focus on the problem he’s trying to solve; present answers that resonate with his underlying objectives, not your own. Analytical—not emotional—engagement is essential. (76:32)

9. Freeports & Special Economic Zones (78:49–83:46)

• The UK Should Expand Freeports—But Get the Model Right:
  • Best zones combine tax breaks with sweeping regulatory reform.
  • Microcosms for what should be national changes; showcase what’s possible when incumbency is absent.

  “I would test freeport rules and regulations: is there something in there that I would want in the whole country?... It’s an alternative delivery mechanism for reform.” (79:52)

• Global Examples:
  Singapore, Dubai, and others used such zones to leapfrog economic stagnation and inspire optimism—a potential model for Britain’s future.

  “When you get GDP per capita and when you get this kind of growth, you change people. They become optimistic, they become hopeful… It doesn't have to be this way. And there are lots of examples all over the world where it isn't that way.” (81:34)

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Notable Quotes & Memorable Moments

On Stagnation and Growth

• “The danger of contraction… is it just destroys the will of people to sort of get through the day. And I think the British people are kind of at that place. And it doesn’t have to be this way.”
  • Shanker Singham (00:00, 81:34)

On GDP Per Capita

• “Every time you’re told about GDP, ask about GDP per capita.”
  • Peter McCormack (17:39)

On Regulatory Reform

• “It's a lot easier to destroy wealth than it is to create. And competition is the biggest force we know that actually allows that growth to take place.”
  • Shanker Singham (10:29)

On Incumbency and Regulatory Capture

• “A lot of that regulation is in place because large incumbent companies want it there… They want it there so that they can stop new entrants from entering the market and competing.”
  • Shanker Singham (08:11)

On Political Barriers

• “The problem that gets in the way of good economics is bad politics.”
  • Peter McCormack (63:41)

On the Power of Anger and Democracy

• “The only thing that offsets incumbent power and status quo is the people getting angry, frankly. And… what surprises me is that the British people are not more angry that their quality of life has been substantially eroded through the decisions of their own governments.”
  • Shanker Singham (53:17)

On Freeports and National Mood

• “When you get GDP per capita and this kind of growth, you change people. They become optimistic…”
  • Shanker Singham (81:34)

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Key Timestamps

• Economic Malaise and Policy Drivers: 00:00–06:43
• Tax, Regulation, and Effects: 06:43–14:20
• GDP vs. GDP Per Capita: 14:20–18:20
• Regulatory Capture and Banking Example: 18:20–23:04
• Competition, Planning Reform, and Growth Modelling: 11:49–14:18, 24:02–31:11
• Regulatory Harmonisation and Irish Tax Story: 39:12–43:57
• Brexit, Regulations, and Power: 46:15–62:09
• External Forces and Reforms (NAFTA/US/Trump): 65:32–67:55
• Trump's Tariff Doctrine: 67:55–73:06
• Engaging with Trump and Mindset: 76:32–78:49
• Freeports and Special Economic Zones: 78:49–83:46

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Final Thoughts & Tone

Shanker Singham’s tone blends frustration at political inertia with empirical optimism about what is technically achievable—if only incumbent power can be checked and the public demands real change. McCormack’s questions cut to the heart of everyday business reality, translating policy abstractions back to street-level impact. The conversation is unsparing in its critique of UK policy-making, yet offers a compelling roadmap for meaningful and measurable economic revival.

“We need to get a bit more angry, a bit more vocal.”
– Peter McCormack (83:59)

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For listeners seeking substance over soundbites, this episode offers a masterclass in real-world economics, regulatory reform, and the gritty dynamics that separate prosperity from stagnation.

Transcript

[A]

When you get GDP per capita and when you get this kind of growth, you change people. They become optimistic, they become hopeful. They're thinking of how to improve the lives of themselves and their children. They're not thinking about how do I get up in the morning? Which the danger of contraction in the way that we've seen it is it just destroys the will of people to sort of get through the day. And I think the British people are kind of at that point place and it doesn't have to be this way. And there are lots of examples all over the world where it isn't that way. It's important to understand that we're not in this, this. We don't have these feelings because it's just the way of the world. We have these feelings because of what our governments have done to us in the last 25 years. Deliberately deliberate choices.

[B]

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[C]

Okay. Hi. Good to see you.

[A]

Good to see you.

[C]

Thanks for coming in. We're in very strange times.

[A]

We certainly are.

[C]

We have this kind of split crowd, especially here. And I mean, you'll see it going back and forth to America. I think a lot of people don't really understand Trump here in the uk. There's a lot lower percentage, well, a higher percentage who think he's the devil. But we're also really interested in economic times. There's a lot of talk of growth, there's a lot of talk about growth from the Labour Party. There's the policies of Rachel Reeves. But I think most of us kind of common, normal people don't really understand it. So it'd be great to talk to you about it, to, to really understand kind of where we are and what you think Labour might maybe get wrong, maybe get them right and where you think we're heading.

[A]

Absolutely.

[C]

So I probably start with asking, what would a Normal person like me not understand about growth in terms of an economy and what should, what would drive growth?

[A]

Yeah, well, I mean, I think it's quite useful that the Prime Minister has framed, you know, everything in terms of his policy choices around economic growth. And I think when he spoke to some businesses at that Labour business day, he actually made the point that he was, might be unusual to hear a Labour Prime Minister talking so much about economic growth. And also made the point that by that he means wealth creation, which I thought was an interesting way of expressing it. And now he's talking about household income, increasing household income. And the proxy for household income is GDP per capita. So that is a combination of private sector activity, government spending, consumer spending. It's a reflection of the sort of net income, if you like, of your typical person in the uk. So I think that's a good metric to measure his policies by.

[C]

Should that be inflation adjusted as well?

[A]

Well, your GDP purchasing power parity is what you would use and that's adjusted for a particular benchmark in terms of pounds, dollars, whatever. So what you want to get from growth is you want to get the piece of it that is private sector economic activity. That's really what you want to stimulate because everything comes from that. And one of the problems in the GDP number, that includes government spending. So you saw this very recently in the announcement, the growth announcement, GDP went up by 0.1%, which is not great. But GDP per capita went down. GDP per capita went down because population is increasing so much. You know, we're adding a million a year, mostly from immigration. So what you actually feel as a regular person is GDP per capita. That's what you feel in your pocketbook. And that's going down. And it's been going down really for the last six months. And even before that, the last 25 years, you know, GDP per capita growth has been very, very low in not just the UK, but pretty much the entire G7, apart from the US, where it's been a bit more. A bit more resilient. But since the financial crisis or just before, we've really not seen significant growth in the G7. And now that's very important because it's the power of large numbers and compounding. So just if you look at the economy of the US and you go back to 1890 and you say, let's have 1% less growth year on year between 1890 and 1980 in the US, what would the US look like in 1980 if you did that, it would be smaller than the economy of Mexico in 1980. Because of this power of compounding, Einstein said, he who doesn't understand compound interest will be crushed by it. And that is what happens. So you can't have 25 years of very little growth and not have the position we are in now, which is seas of red ink and no money at all. No money for public sector, no money for anything really, which is what the Chancellor is discovering. So the question obviously is, well, what do we do about it? How do we get that growth to, to come back?

[C]

Well, that sea of ridding, how much is that is cause and how much is effect? How much of what we're seeing is a response to low growth and government executing kind of poor economic policy where they create new rules and regulations, which by the way, a lot of the regulations, I believe exist to extract wealth themselves. And the higher taxation. How much of that is a result of poor growth and how much causes it?

[A]

Yeah, so poor growth does not happen just out of nothing. It's not like preordained that we should be in this period of poor growth. We are in a period of poor growth, frankly, exactly because of the policy choices we have made in the last 25 years. And so what has led to this situation? Well, what's led to this situation is a number of things. First of all, domestic policy. So we maintain tax rates that are too high. So we disincentivize economic activity by private sector people. Since the 2008 Climate Change Act. The 2008 Climate Change act imposed a 18 pounds per tonne carbon floor price in the US at the same time, the carbon floor price in most US states was about $3 per ton. So how can you be competitive if you've got that kind of difference? Because energy isn't everything. So your fridge, your anything, you have a good 30 to 50% of it is energy cost, the production of it. So if your energy cost is very high, you're going to be less competitive. And so we did that with the Climate change Act of 2008. We've continued to do that. And a lot of the growth killing regulation is in the environmental area, which is why it makes it difficult to deal with because it looks like it's for a good purpose. It looks like it's so called prudential regulation, health and safety. Prudential regulation is very hard to cut because it looks like you're taking a risk. Whereas actually, as you said, a lot of that regulation is in place because large incumbent companies want it there. They want it there so that they can stop new Entrants from entering the market and competing. And you see this in banking. You see this in many, many things. There was a recent study actually in the, where they looked at the Federal Register, the federal regulation in the US and they found that between 31 and 37% of market power increases. In other words, incumbent companies getting more and more incumbents, becoming more and more powerful, less and less competition. 37% of it was due to federal regulation, not business activity, not even cartels, not even other private anti competitive things. But going to the government and getting a regulation to stop your competitor from being able to compete with you.

[C]

I didn't think I'd mention it this early, but I've experienced this just in the bitcoin sector itself. I mean we've witnessed JP Morgan regularly lobbying and campaigning against bitcoin in the US and they had a lot of success under the Biden administration. Elizabeth Warren fully adopted an anti bitcoin strategy. But even here in the uk I've had three bank accounts closed down just because my podcast was about bitcoin. Not because I accepted bitcoin, not because I bought bitcoin, but one was because it had bitcoin in the name. One was because I got paid by a bitcoin company. I can't remember the third one, but yeah, three times. This is just a podcast at the time employed six people.

[A]

Yes.

[C]

Yeah, well paying jobs.

[A]

Yeah.

[C]

Editing, publishing content. And I didn't have banking services. I nearly missed one payroll because I had all my assets frozen. It was by wise they froze all my assets and closed my account. And obviously they don't have a call center number. So I've experienced that kind of protectionism that exists against an incumbent.

[A]

Yeah, I mean, I mean one of the problems we have in the UK is if you want to grow the economy, if you want to increase sort of GDP per capita growth. There are some fundamental principles that are like laws of nature. You can't bend them and twist them to your own purpose. They're fundamental laws of nature. The first is that wealth can be created or destroyed. It's not a fixed thing. Appears that Keir Starmer has recognized that by saying that wealth creation is his objective. It's a lot easier to destroy than it is to create. So it's a lot easier to regulate in ways that damage competition and destroy GDP per capita growth from the economy than it is to do something that generates, that creates wealth and creates private sector economic. You have to work very hard to do that. You don't have to work very hard to destroy wealth. That's easy to do. And competition is the biggest force we know that actually elevates that actually allows that growth to take place. And when we talk about wealth creation, people sort of, perhaps it's because the word wealth is in there. People sort of misunderstand what wealth creation actually is. So wealth creation is the realization of ideas. Money is just a measurement. It's just a way of measuring how successful you are at realizing ideas. But if you can shorten the time it takes to go from idea creation to idea crystallization, then you're a successful functioning economy. That's why the US is so successful in the tech sector, because it has a kind of regulatory framework that promotes competition, promotes innovation, et cetera. That's why Europe isn't doing that, because it has the opposite regulatory framework, a wealth destroying regulatory framework in this sector. So those are the sort of fundamental rules within that. You look at three things. How open is your trade regiment? How much is your economy based on competition on the merits as opposed to regulatory, satisfying particular regulatory burdens? And how much do you protect property rights, including intellectual property rights. And it's very clear from our economic modeling that if you get those three things right and you improve those three things, you will generate GDP per capita increases into your economy. If you get these things wrong, you'll destroy it. And the effect of a relatively small increase, a 10% increase in domestic competition in the UK would be about 5.5% GDP per capita increase. That's state to state. So it's not immediate, it's not tomorrow, however long it takes you to realize a 10% improvement in your domestic regulation, that might be five years, it might be two years. Whatever it is, you'll get a 5.5% GDP per capita gain. Now, to put that in context, if this economy grew 1 point GDP per capita year on year, that would be trumpeted as an astounding success. In fact, we're shrinking at 0.1 0.2%. So 5.5% is an order of magnitude difference. And what I said before about compounding, you do that, year on year on year, suddenly you're dramatically changing the quality of people's lives. So if you compare us with the US which has made lots of mistakes in the last 25 years, it has not been a paragon of virtue in this area, but it's done a lot better than we have. We were 90% of US GDP per capita in the early 2000s. We're now 60%, and we're on our way to being 40%, we're about to be overtaken by Poland and Slovenia.

[C]

I heard this about Poland, and we're.

[A]

Already lower than Mississippi. We were always sort of in the pack of US States, maybe a bit towards the bottom of the pack, but we were in the pack. So if you think of this as a race, you know, a long distance race, you know, the UK sitting there in the pack, you know, we're still competitive. We've now dropped behind the poorest performer in the US which is the state of Mississippi. And then you look at Western Europe. Germany is below West Virginia with the second border state. And the German economy has contracted for the last three years. So we're doing something wrong in Western Europe and we're doing something wrong in the uk and by the way, central Eastern Europe, they're growing faster. Not as fast as the us but at least they are growing. They're doing something right in the us and that's despite a burden of the last few years where Biden added 100,000 pages to the federal rulebook and massively increased regulatory distortion in the US with all kinds of laws and acts and so forth, but nevertheless, they're still doing better than us. So you've got to get those three things right. You've got to improve those three things. And we know from our economic modeling we can tell you exactly what the GDP per capita gain is from improving those three areas. And we then look at what the Labour government is doing and we say, okay, on planning reform, that's a big deal. That moves about a third of the gains we think you could have. My growth commission's done three budgets for the UK now. And we've said if you do these things, you will gain significantly your GDP per capita, 26% over the next 20 years. We project about a third of that is planning reform. So we basically say, I have experience of planning. Well, I think everyone who's tried to do anything in the UK has experienced the planning situation and you can't do anything here. I mean, it takes too long and it's too expensive to build or do anything. And that's got to change. But that requires wholesale planning reform, not tinkering at the edges. Then you look at a lot of. So they're right on that issue and they need to solve that issue, but it needs to be big reform. So they need to get the statutory consultees out of the process, they need to get the judicial review out of the process. They need to make it very easy for trusted developers to develop. There's a Whole set of things that we've suggested that they do. If you assume that that gives them the gain that we suggested planning reform would give you. When we costed the rest of the Autumn budget, it's minus 8%, it's not plus 26, it's minus 8 over 20 years. And actually the GDP per capita over the last six months is bearing exactly out our prediction the last quarter it was minus 0.1% and our projection is about minus 0.4% per year.

[C]

Do you think we're being gaslit with GDP figures? Because growing up that's the only figure.

[A]

I was aware of.

[C]

And you can massage a GDP figure or it can look stagnant when really the only figure people should care about is per capita. Do we need to almost educate the entire nation is every time you're told about gdp, ask about GDP per capita.

[A]

Yeah. And it's even more than that. So not only should we only be thinking about GDP per capita in terms of measuring what, what the Prime Minister wants to measure, which is household income, we also need to disaggregate the government spending piece. So we have had, we've done that in our model. We actually that 5.5% figure I gave you was, was GDP per capita impact less government spending? So it really is reflecting an improvement in private sector economic activity.

[C]

Is that even when they create money out of thin air, does that. No, that would count because the inflation.

[A]

That's why, that's why China's GDP is pretty good. Because a lot of it is government spending. And coming back to what you said about Bitcoin and banking, we have a fundamental in the UK challenge in the retail banking sector, which is there frankly is just not enough competition. And you wonder in a banking sector that's very sclerotic and doesn't have much competition, you wonder why don't these Challenger banks succeed? You know, why don't we. You would think that there would be a huge market for them. So there must be something in the domestic regulatory environment or in the. Whether it's the capital adequacy rules or there are lots of things that banks have to do in order to even be a bank. And a lot of that is keeping Challenger banks out. We still have one of the major high street banks, you know, with the government owning most of the shares. And that is an unsustainable position. I was involved in the US when the fiscal crisis hit, the global financial crisis in the US I was partnering in a law firm. We represented the US treasury and we were buying Banks and selling them every week. It was a bizarre moment in US history and these were big banks. But we unwound the government role in the banking sector pretty quickly. It's now 2025, it's still there in the UK. So we have to eliminate that government distortion in the banking sector, the regulatory barriers that make it hard to set up a bank. And then underneath that, the financial system there is the big distortion that you just mentioned, which is fiat money and just being able to print money whenever and however you want. And that is a distortion that damages the ability to gain from these competitive forces in that sector.

[B]

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[C]

It all sounds so obvious and easy. I mean, look, me as a simple businessman knows that when you raise taxes or make bring in new regulations, I just invest less. I create less business. I just create small businesses, but I create less.

[A]

Yeah.

[C]

And I want to create businesses. I love doing it. I just naturally know that. But you're talking about these bigger forces. If I was Rachel Reeves, I'm under a lot of pressure right now. I've delivered new policies, new borrowing, new.

[B]

Spending targets and they've been met with.

[C]

Pretty disappointing responses both from the media and the public. They're having a hard time. What I don't understand is why say Rachel Reeves doesn't sit down with you, Shankar, and says, look, what should we do? And you present these ideas and they go, that's great. We can deliver 5% growth. We will get reelected. I will be considered a. I would be considered having a great term. I'm a great chancellor. What is the, the barrier. Yeah. What is the barrier to making these, what seem obvious decisions?

[A]

Yeah. So let's look at what they're doing and then sort of go through it sort of not item by item, but sort of broad category by broad category. One of the biggest movers in the competition pillar in terms of generating GDP per capita is labor market flexibility. So they're about to have a package of labor reforms that would make our labor market considerably less flexible.

[C]

Yeah. Prepare for those.

[A]

So, yeah, so what are people going to do in those areas? Small businesses are going to say, you know what makes it very difficult to fire someone? As you know, makes it very difficult to hire someone. So a lot of small businesses will think twice about hiring anyone because they know that if something goes wrong, which it usually does for a small business starting up, they're going to be stuck with all these huge costs. They may not be able to get rid of that employee. It may be the reason they lose.

[C]

Their business, but that's what happened in Argentina. It became illegal to get rid of people. But I mean, the thing I would, if it was Angela Rayner sat here, I would say to her, if I wanted to get rid of somebody, do you know how I have to do it now? I have to engineer it. And I can engineer it. I can bring in a consultant, you engineer a series of steps to get rid of that person and you can get rid of them. But in bringing that company, that's a misallocation of capital within my business.

[A]

You shouldn't be thinking this way, as of course you should be thinking about how to grow your business and really only that. But it's clear that labor inflexibility is a big driver of wealth destruction. So we've got a big package, probably the biggest package of inflexibility in the labor market that's been proposed probably for a long time. That's why the private sector is reacting so negatively against it.

[C]

Sorry to keep interrupting because I have so many questions. Is that union driven?

[A]

Well, so that comes to the next point, which is why is it there? If it's so obviously damaging, why is it there? Well, all of these things are driven by different kinds of incumbent status quo powers. So in the case of labor, yes, the unions will drive some of this. Sometimes large companies will drive some of this. Sometimes large companies like these kinds of things because they know that they can satisfy them and they know that smaller new entrants can't. So, so sometimes you've got incumbents, you know, so sometimes it's the business community actually that drives some of this stuff. So, so that's the labor package that they, they suggested. Then you have one of the biggest challenges and one of the biggest gains potentially in terms of wealth and GDP per capita is lowering your energy cost. And we had a lot of recommendations in my growth commission about how you improve the energy markets. In the uk it starts with generation because obviously if you don't generate, then you have nothing to, you have nothing to actually compete with. But there's a whole range of things that even the Competition and Markets authority has suggested in 2015 in terms of more competition in the grid, better interconnection, all of these things. The problem is that they have suggested Great British Energy, a state owned energy company, which will crowd out the private sector. What little private sector we have will be crowded out by that. And it's this assumption that if something is wrong, the government has to provide the answer. You know, there's lots wrong with the UK's energy market, but it's competition that provides the answer. And you don't have to have the government doing everything. We have a similar thing with Great British Nuclear. So what is Great British Nuclear? It is a government owned entity. Again, there's lots of nuclear technologies like SMRs and all kinds of things that are proven technologies that are deployed and being deployed around the world. We don't need a competition sponsored and hosted by Great British Nuclear. In order to determine what you do is you have a license requirement, you have the usual requirements that a company has to satisfy in order to have the license to operate in the nuclear sector. And then you let them operate and you let the market sort of decide how these things will work. So we have this distortion. We have huge subsidies for renewable energy that distorts the economic calculus that companies make when they're deciding what to do and which energy to produce. And all of these different things are.

[C]

Those subsidies of destruction of wealth, of course?

[A]

Yeah, yeah, absolutely, yeah. Any subsidy, I mean a subsidy is almost the extreme example of a wealth destructive policy. The only reason you might introduce a subsidy is if you're trying to sort of level the playing field of a previous distortion. So let's have an example. Suppose, suppose years ago we banned all wind farms and solar energy. They were all banned, let's just imagine, and the oil and gas companies were doing very well and they got a subsidy. In that case a subsidy for wind and solar might be acceptable. Because what you're basically saying is we had a huge distortion, we banned them all, now we think they should be allowed to function. So we're going to provide a sort of level playing field kind of arrangement. In that case it might be justifiable. But in a general case, a subsidy is almost always going to be an anti competitive distortion that damages wealth and lowers your GDP per capita. But the subsidy is easier to deal with because it's obvious the things that are much more difficult to deal with are the things that are buried in the system. The sort of and particularly environmental health and safety regulation. Very often, not always, but very often a sort of distortive protectionist intent is hidden behind a prudential health and safety regulation. So I might say I might be a bank and I might lobby for very high rules on capital adequacy. I might say I want to have. You can't be a bank unless you have this much capital because it's safe. It sounds good. Yeah. I don't want banks to have no capital. I don't want them to be under capitalized. But the problem is that the people who want that are the biggest banks with the most capital because they don't want anyone to compete with them. And so when you start talking about a potential health and safety regulation, a prudential regulation, you will find that all these incumbents come to you and say, we think this is a really good idea, Prime Minister. You know, you should do this. So that's that 37% of market power increases through federal regulation that I mentioned. So I think. And then we can look at all the other things that are there.

[C]

Not to be too suspicious on this, but you often find previous members of Parliament end up on boards as consultants at very large firms. Would I be overly suspicious to think the reason they want ex MPs is because of their own network of other people they can lobby?

[A]

Well, clearly, clearly incumbents around the world. And there's nothing wrong with lobbying. I mean, lobbying is in the US you have the right to petition the government with your grievances and that's what lobbying is. And there's nothing wrong with that at all as long as it's transparent and it's clear and so forth. We could do with a bit more clarity in the uk. In the US you have to register and everyone knows who's doing what and who's talking to who, and that's okay. In fact, you want a legislature that is heavily lobbied on all sides because you want the policymaker at the point that they're making a decision to be really well educated. And that collision of adversarial views is actually the best way to educate them. So we actually need to have more lobbying, not less lobbying. But we have to also recognize that if you have a system where the only people who can lobby the government for cost reasons or other reasons are incumbent businesses, you're going to get a very incumbent favoring regulatory system, which is what we have. So yes, I've never faulted. I was involved in a case in the mid-90s, which was when I came face to face with the one of the biggest distortions then. And it was a case involving telecoms in Mexico. And I actually represented AT&T and you know, we had USTR. We had the full force and power of the US government on our side. And we were up against Carlos Slim, who was at the time the richest man in the world, who owned Telmex. And he took us to the cleaners in Mexico because he had so much incumbent power. At one point we were told by the head of the Mexican stock exchange that you had to be careful what they did because it was the number one stock on the Mexican stock exchange. The regulator actually said that, the telecom regulator. And we were told by the banks in Wall street that the regulatory bias favors the incumbent. So you at&t trying to enter the Mexican market, which would result in lower costs and more phones for people in Mexico are doing a stupid thing. That's what the banks told us. You shouldn't be in this market. Everyone should be betting on Mexico and on the incumbent. And we said you were underwriting the fix. And they were, but they didn't care. But what I realized from this whole experience was that firms will do what firms will do in the regulatory environment they find themselves in. It's not their fault. They're not evil people. They're doing what the regulatory environment requires them to do in order to succeed. What we have to do is change the regulatory environment. We have to have a more pro competitive regulatory environment. We can't expect businesses to suddenly leave money on the table that could otherwise be made. So having more competition, creating a regulatory structure. So every, every new regulatory, this is what proposal we've made. Every new regulation that is being contemplated by policymakers needs to go through a lens of what is the effect on competition of this regulation, what is the effect on trade, what is the effect on property rights. Not to say you wouldn't regulate if there was a negative effect on those things, but at least policymakers would know how much it's going to cost. And people might say, I know this is going to destroy 2% of our GDP per capita, but it's so important we want to do it anyway. And that's totally legitimate. That's the normal, that's well above my pay grade. That's the people, they decide, but they cannot make decisions if they don't know how much things cost. And if they don't know the effect of on their household income, you know, are you willing to take a 1500 pound hit, a 5000 pound hit? Because you so believe in this particular thing. And if the people decide they want to, then fine, that's up to them. So that's the kind of regulatory structure that you need to have. You know, we started to go a little bit towards that. In the previous government there was a productivity, there was a sort of growth duty that was placed on regulators. You might have heard that there's a lot of talk about putting a growth duty on regulators. Well, if you look at what it actually meant. And you look at the consultations, you find that economic growth was defined to include sustainable economic growth, environmental objectives, all kinds of other objectives. So it wasn't really a growth duty, it was really more like an anti growth duty on the regulators. So you have to have, in good economics, you have one policy to affect one policy change. You don't try to have multiple policy change effects from one policy because that won't work. So by putting too much on the growth duty, they completely destroyed its value. So I would go back to that, I'd make it a proper growth duty. But a growth duty effectively means just look at the regulation and its effect on competition. But the problem is that, you know, when you look at regulatory cost, there's three at least three different kinds of regulatory cost. Two that people care about and know and one that they're totally oblivious of but is actually the biggest one. So business compliance cost, everyone knows about that. All businesses will say we don't want to have these burdensome regulations. That's all good. Yeah, fine. There's the divergence cost. This is the debate we're having with the, you know, on the EU and the UK and leaving the eu. There's two divergent regulatory systems. It's costly for me as a business to satisfy two systems. I'd rather satisfy one system. And yes, there is a divergence cost, but those costs are tiny compared to the cost of actually having an anti competitive regulatory system to start with. So if you look at something like European agricultural policy in the food and, you know, plant health area, what we call sps, Sanitary and phytosanitary agreement, phytosanitary measures. Europeans have an incredibly restrictive anti competitive set of regulations in that area that is regularly challenged by every other, you know, country in the world. They ban almost everything. You know, it's a very, very anti competitive system. The cost of that system dwarfs business compliance cost and divergence cost. And it's actually a fundamental question the UK has to answer because if that's the case, then you don't want to align to a fundamentally anti competitive regulatory system because that cost is much bigger. On the other hand, there are other areas actually even of European regulation, not many, but there are areas of European regulation where it's actually fundamentally more or less pro competitive. And if you align to that, then if it's pro competitive, then the divergence cost and the business compliance cost become the much bigger factors that you need to think about. And therefore you might want to align in that case with that.

[C]

It Reminds me of when Ireland started offering preferential tax rates to the tech companies to come and base themselves in Ireland. And I remember specifically that they got fined, but they fined the companies billions of euros and they had to pay the Irish government. But the Irish government didn't want those payment.

[A]

They didn't want the payment. They had to disgorge the.

[C]

And I was thinking, hold on, this doesn't make sense. What has Europe done here is basically said there has to be a flat rate corporation tax. I can't remember what the was it.

[A]

Corporation tax, but they had a 12% corporation tax.

[C]

Yeah, but if someone can do 11.

[B]

10, why wouldn't we have this?

[C]

This is great.

[A]

So what we generally want, and it's true of tax as it is of other kinds of regulation, is we want regulatory competition. You know, we want people to be able to choose a more try to find that pro competitive regulatory system. You know, what is the appropriate tax rate for a corporation? Who knows, it might be 3%, it might be 35%, I mean, who knows? But, but let's let countries decide what works for them. And in that environment you want to mutually recognize each other's regulations. If the fundamental object is the same, and that is actually the WTO system, I mean that is the system, in fact, ironically, that is the system that built the European Union. Mutual recognition of different regulatory systems, all based on the same fundamental objective. And you know, so that's one way of doing things. When the Commission, European Commission had a go at the Irish tax rate, when the OECD has got this minimum tax that they think the whole world should charge, what you're doing there is you're moving away from that world of competition and recognition into a world of harmonization. And in a harmonized world and lots of big businesses like harmonized world, they don't want to have any different. They don't care how damaging the regulation is as long as it's the same. You know, many businesses, and I'm not criticizing them, that is what I would do. If I were a large business, I would be really, why would I care about GDP per capita? I care only about my revenue and my profit. And that's entirely right. But somebody's got to care about GDP per capita, right? So it's not just because the business says they want something, government has to do it. So what you get in the, in the tax area and other areas is you get this approach of which is a quite a different approach from the past, which is if you want access to my market Then you must copy my regulatory system. Your regulatory system must be identical to mine. This is what the EU does. It's the so called Brussels effect where they try to push their regulatory system on other parties and often they find that large incumbent businesses are the sort of vehicle for doing so. Because I'll give you one example, recently in Missouri, Missouri grain farmers who were selling to Missouri silos for onward distribution of product to the US consumer were told by adm, a US company, that they had to satisfy European deforestation regulation, even though the product was going nowhere near. It was, it was. This is entirely within the US because it was easier for ADM just to say there's one standard and, and the standard the business will pick will be the most restrictive standard because that's the way you know it's all gonna be able to go anywhere. So you know they got slapped over the wrist by the senator from Missouri who said how dare you. And the irony of this whole thing was that it wasn't even the law in Europe yet. And in fact, as a result of Trump coming in, a lot of European member states are now pushing back on the European regulatory, the Green New Deal and so forth. And I suspect what you'll see in Europe is a bit of a pullback from some of that, if only to be competitive in the world. But this is why the UK's accession to the Trans Pacific Partnership is so important. Because that is a system that's built on this regulatory competition with recognition. That's the whole approach of countries like Australia and New Zealand and Singapore and so on. And any deal we would do with the US would be similar based on a similar sort of assumption.

[B]

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[C]

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[C]

To jump around a little bit with Brexit because I know you've got quite a deep background with Brexit. It seemed like common sense would say that to have a free trade deal post Brexit between the EU and the UK would be good for all parties. But in doing that, did they essentially cut off their nose to spite their face because the EU knew? Look, if the UK could leave the eu, have full access to the free market, other countries within the EU might say, well, why am I part of this? Was there a certain amount of protectionism?

[A]

So we have access to the EU market, but like everybody else, everyone has access to the EU market provided you satisfy European rules and standards. And that's always going to be the case. That will never not be the case. So what you can do is lower the burdens by doing things like mutual recognition and so on. And it is true that the EU UK agreement could be improved. There's a lot that I would suggest we should do to improve it. So if the Government wants to have a reset with the eu, I would focus on the missing things in the trade agreement, the mutual recognition pieces. Mutual recognition of qualifications services is not covered at all, really, in the agreement. So essentially ensuring that both parties, and this is what most trade agreements do, is they. They're there to stop parties doing things that are anti, that are protectionist or distortionary. So you, you want some disciplines in place in services to stop both parties, UK and eu, from doing things that are distortionary or protectionist.

[C]

But it sounds like when I've heard, and there's certain carve outs, but they do want to protect certain areas. They do want to protect certain areas.

[A]

Well, you know, and it's entirely up to you to agree what you want to protect. Want to protect the nhs, for example, you can. It's not a problem. And that's the back and forth and debate in a trade negotiation, which is, what are you trying to protect, what are you not trying to protect? Will it make sense? And so on. So the European, the agreement, the deal with the EU could be significantly improved. And there's only two things I think the government has to watch for. I would say, and this is, I'm speaking economically, not necessarily politically, but what I would say is, as long as what you do doesn't damage your independent trade policy, your ability to do deals with other people, and as long as it doesn't damage your regulatory autonomy so that you can improve your regulatory system, to give you all this wealth creation that we all want to have, then anything, it's all fair game. You know, if there's something that helps improve the UK EU trading arrangement for companies that are trading back and forth and it doesn't damage those two things, there has to be a pretty good reason why you wouldn't do it.

[C]

Excuse this question, but all these ideas you talk about, all these. The things that nations should be doing to drive growth. How much of this is thesis, how much of this is just like, when you look at it, you go, I know this will work. I 100% know this work. Maybe my calculation, my estimates could be wrong, but you 100% know this will work.

[A]

Well, I've spent.

[C]

It's a leading question.

[A]

Yes. No, I've spent 30 years developing some of these economic models and they have been challenging and difficult to develop, which is why they've taken 30 years.

[C]

Yeah.

[A]

But I am at a point, and I probably wouldn't have said this to you if we Were having this podcast a year ago.

[C]

Okay.

[A]

I'm at a point with these, with particularly the models that we now use in the Growth Commission and other places where I'm actually pretty. These are pretty robust models now. They've been multiply peer reviewed, et cetera, et cetera over the years. They've withstood a lot of challenges. And I think now nothing is ever perfect, of course, but I think it's sufficiently robust that you can certainly absolutely make policy decisions on the basis of them. Also, there's one other point here. Despite the fact I spent 30 years developing these models, we also have a tendency in this country, particularly more than others that I've worked in, to fetishize economic models. It's almost like politicians put their hands in the air and say, well, the laptop tells me this, so I must do this. I mean, you classically see it with the Chancellor and the Treasury Department. Treasury tells me I must do this, so I must do this. Fiscal headroom. Fiscal headroom changes. We've seen how much it can change a little bit of growth. Suddenly there's much more physical headroom. So actually what you have to do is you have to focus on growth. But we're focusing on the wrong things. We're putting the cart before the horse. Your headroom to do things in terms of spending comes from your ability to grow the economy. You don't figure out, you know, what headroom do I have? And then I can then enact a growth promoting measure. That's the wrong way around. But economic models will only give you orders of magnitude signs. They won't tell you exactly. You can't say, okay, if I do this, you still telling me it's going to be 10% GDP or 8.6% GDP per capita. And I go back 10 years later and it wasn't, it was something else. It was 4.3. Okay, well, any economic model will only give you a sense of the scale. And that's what's very interesting about our modeling, is that it tells us that, that domestic competition, that improving your regulatory system pillar is about three or four times the effect of a conventional trade barrier border measure improvement of the same scale. So we have historically thought that all the big gains come from trade liberalization by itself lowering the tariff, opening the border. And what our data is suggesting is actually there are gains there and they're not to be sniffed at, but they're a fraction of improving your own domestic regulatory system. That's what you want to do the most of. So if you have those Two constraints on the E reset of independent trade policy and domestic regulatory autonomy. Domestic regulatory autonomy is about three times more important than independent trade policy.

[C]

The leading point of the question was you must bang your head against the wall. You must see a report of 0.1% growth, which we all know is pathetic. And just you must be thinking, but if only if you made these changes, only if you, I don't know, grew a backbone. I don't know what, I don't know what is the block? Is it, is it ideology? I think the block, is it lack of ability?

[A]

I think the block is incumbent power and status quo favoring. And the only thing that offsets incumbent power and status quo is the people getting angry, frankly. And one thing that has surprised me, I think I spend my life virtually half in the US, half in the UK I've lived in the US for 23 years. I've lived in the UK for 30 plus years. What surprises me is that the British people are not more angry that their quality of life has been substantially eroded through the decisions of their own governments. Nothing to do with what anyone else is doing. The decisions of their own governments on both sides of the political spectrum have contributed to the fact that you're about half as rich as the American family that you were about on a par with 25 years ago.

[B]

They probably don't know most people.

[A]

Well, many people don't know that. And I think, although, although a lot of Brits go on holiday to places like Florida and so forth and they.

[C]

Probably the ones less impacted by it.

[A]

Though perhaps, but they see the way an American family, and I'm not talking about a rich American family, I'm talking about somebody who works in a grocery store on a factory line, you know, where husband and wife are both working on in a factory production line. The houses they live in, the cars they drive, the foreign holidays, all the fancy holidays inside the us the schools their kids go to, just their general quality of life is about double the quality of life of the same family if they were living in the uk. And it's not just the income side, it's the cost side. The US energy cost is a quarter of the UK energy cost. And energy isn't everything. So not only is your income half, your costs are about three times. So net, net, it's a radically different lifestyle that you're, that you're living. And young people now, you know, young people will make decisions.

[C]

Well, they'll leave.

[A]

They'll leave.

[C]

Yeah, but I, I, so I, I think a lot of people don't actually really realize that, that it's, that that.

[A]

Must be the case.

[C]

Well, because I think, I think you still have your tv, you still have your holiday in Europe, you still have a car, you can still go to the pub, you maybe go to dinner. I think the, the poorest has struggled with the big, you know, the challenging challenges of inflation and the widening wealth gap. Maybe don't notice, but I don't. I think it's, it's a bit like the annual 2% inflation.

[B]

You don't fully, you don't really see it and feel it.

[C]

We first felt it with this kind of 10, 15%.

[B]

But I think the other thing is, I say that and then I'm going.

[C]

To contradict it, but I think there is some palpable anger starting to happen and I think the rise of someone like reform is a reflection of that because I think there's this kind of like, well, I voted for those, they were terrible. I've now voted for labor, they're terrible. Well, I need something else.

[A]

Yeah, no, I think, I mean there is definitely some anger about this that's being reflected in the polling now. I think the main parties sometimes misunderstand where the people are on this sort of stuff. So, you know, Labour has said we're not going to rejoin the Customs Union, we're not going to rejoin the single market. And the reason I think that they're saying they're not going to rejoin the single market is because of freedom of movement. They know, or they think they know, that the bulk of red wall seats, the bulk of people in the country know that a million a year coming into the country through immigration is not controllable, it's not a controlled event and is damaging and is putting lots of pressure on public services and all kinds of other things. And many of them are not really contributing in the way that historical waves of immigrants did contribute. So there's that understanding and I think the mistake that the labor government is making is thinking that that's the thing that people care about the most. And I think what people care about the most is are you increasing my household income? Are you decreasing my household cost? And the way to do that is a, you can't do it if you don't have control of your own regulations. So the first thing you have to have is control of your own regulations and then you have to use that control to have a pro competitive regulatory system. And I don't think that the government realizes that that's what people actually want, that the immigration stuff is A byproduct of, you know, it's given the fact you're not growing the economy, having a million people come in every year, many of whom are not particularly productive, is a very bad idea. I think people recognize that. But I had a MP say to me around the time of the Brexit vote, and he went, he was talking to people in a farmer's market or something, and these two guys came up to him and they, it crystallized the issue for him. They basically said, we can get rid of you. We can't get rid of them, meaning it's the commission we can't get rid of, but we can get rid of you. So having control of your own laws, take back control of your laws, is the fundamental driver. And also it's the thing that is the reason for doing this. So if the European, if Europe was a, like it used to be, frankly, you know, in the, in the 1980s and 90s, a driver of trade liberalization and competition, then it would make little sense to leave it. If, on the other hand, it's moving in the other direction, then you have to leave it if you want to grow your economy and if you want to do all these things for your people. So the fundamental decision economically was really that. So if you want a successful outcome of this, you have to be able to control your laws and improve them and improve the regulatory framework and deliver competition and thereby deliver wealth creation and GDP per capita growth. And you have to have a trade autonomy so that you can do deals with countries that are like you and are trying to do the same thing, where you can agree this, and this is what's going to happen when we're faced with the Trump trade offer.

[C]

I'm going to come to that. So was Brexit a missed opportunity? Is it still a missed opportunity?

[A]

Well, I don't think it's happened yet. I think Brexit was like, I guess the analogy is when the UK left the eu, they declared independence in that sense, but there's no constitution yet. There's no significant regulatory change that has aligned. We're actually still, we've ported over all European regulation in the retained EU law bill. So we're basically under. We're still under the more or less the same European regulatory system. It's just our law now. So the next step is you have to stop making these changes to your law. What we seem to be doing and what we have certainly done in certain sectors, and we're doing it now, is we're making our law even less competitive. Than it was while we were in the European Union. So there are things like in the labor area, the working time directive that made the labor market much less flexible. That was a European directive that we imported into our law. Well, we're taking that and running with it. We're making it even more. The latest labor package is not imposed on us by the eu. That is something we're doing to ourselves. So if you've declared independence, you then need to do something with that independence. You need to do something that actually helps people and grows the economy and creates wealth. And if you're not not doing that, you just have to ask yourself, you know, why did you do this in the first place? So the worst thing you can do at this moment when you haven't taken advantage of those changes, is to lock yourself back in to the same regulatory environment you just left. Because at that point, there is no reason. You're getting all the downside of being outside of the EU and none of the upside. So at that point, that feels very.

[C]

British at the moment.

[A]

Yeah. At that point, you know, you've got to go back in. But of course, going back in will be on very different terms and not good terms for us. And I think there's a view that because of Donald Trump and I know we're going to get to this, we somehow have to hide behind the European skirt. Well, that's a little bit like, you know, in a classical mythology, you know, you have these. The sea monster is coming to bite the head off the maiden. You know, what people are saying is the safest place for us to be is right behind the maiden. It's not a very safe place. You want to be as far away from Europe, frankly. There is no question that when the executive agencies rule on unfair trade practices of countries, the EU will be very. They may not be top of the list, China will be top of the list, but the EU will be not very far behind. We do not want to be classified in the same bucket. We want to be in a different bucket.

[C]

Well, there is. There is this thing at the moment where I know people, I know a lot of people are looking across to the US and thinking, I want a bit of that. What's going on there? I want a bit of that. You know, and if we built a strong relationship with America and we improved our economic position, I think there's people in Europe, we're going to go on one of what the UK have got.

[A]

Yes. Or even there are people in Europe now saying they want a bit of what the US has got. Yeah.

[C]

Just before we get on to Trump in America, it seems to me, therefore, that the problem that gets in the way of good economics is bad politics.

[A]

Yes, absolutely. Yes. That's a nice way of succinctly saying it. These are issues. Economics is not an abstract academic discipline. It is the collision of real forces. And politics is the way that collision of forces is managed. And if I'm an incumbent and I have a lot of incumbent power, and you go back to my Carlos Slim example, how was it that this little Mexican company was able to take one of the biggest companies in the world to the cleaners? Because of the way that the political forces and the economic forces lined up in Mexico? That's how it happened.

[C]

Well, yeah. And I mean, look, I've looked across Europe. I'm going to stay in the uk, but I have looked, because the high taxes and corporation tax and the bureaucracy, and I've looked at what I can get in Portugal, I've looked at the tax rate in Bulgaria, I've looked across Europe, I've looked in Italy, of Austria, almost everywhere I look, if I wanted to leave, I could, and I'd pay significantly lower tax. And one of the things that's misleading about that is people say, oh, you just want to avoid tax. Yeah, for two reasons. I want to buy more stuff, I want to consume more stuff, and I want to start more businesses. I don't want to just have it sat in the bank. And so I do the math. If I was in Portugal, what does that mean? What could I buy more? What business could I set up? And so it becomes really super obvious to me that we need to create a better environment, but we're not doing it. And then I go back to my point. I said to you earlier, if I'm Rachel Reeves or if I'm Keir Starmer, I want to be reelected in four years. If I drive 5% growth, I've got a really good chance.

[A]

Yes, I agree. Yeah.

[C]

Shankar, come in. Tell us what to do.

[A]

What do we have to do? Well, we have told them. I mean, you know, did they not believe it? We've told them three times, both this government and the previous government, what to do. I don't think there's any doubt about what we need to do. I think that sort of speaks for itself. And in some of the things I talked about before, I think in the context of Trump and the us, there is an additional set of things that we have to do. And frankly, the things. So what Trump is going to be really Concerned about are all the regulatory barriers and distortions in the UK or Europe or China or wherever that have an adverse effect on trade into the U.S. but what we see is that if we improve those things that have an adverse effect on trade into the U.S. these distortions, we actually improve our own economy. We actually improve our own GDP per capita. We should be doing them anyway. Maybe we can use the situation with the US and the consequent US Offer to do what we should be doing anyway. This is exactly what happened when Mexico joined the US Canada agreement in the late 80s, early 90s and became NAFTA. Carlos Slim. Not Carlos Slim, sorry, Carlos Salinas, the president of Mexico in the 80s, when George Bush was the president of the US went to George Bush, Bush Sr. And said, I want to join your agreement with Canada. We want to have a trilateral North America Free Trade Agreement. The reasons he wanted to do that was NAFTA was a powerful reform document for Mexico, not because he wanted access into the US Market or the Canadian market or any of these trade things that people talk about. It was a reform document for Mexico. And all the reforms that he was trying to put into place, he knew that NAFTA would lock in. And that's what we need to do. Because sometimes when you can't do it yourself, you need an external agent or an external force. And we're not talking about doing things we don't want to do. We're talking about doing the things that will make us richer and make us more prosperous and make us happier. And we can't do them because, yes, we can't do them because of all these forces. So you need another force.

[C]

So Trump, I want to start with tariffs. Everything I've been told about tariffs is tariffs are bad. But at the same time, Trump said, I love tariffs.

[B]

I mean, he says, famously, he loves.

[C]

Tariffs, and he seems to be using them really, as blackmail to get things he wants done, done. But again, you probably will look at his strategy with tariffs, what he's saying about tariffs, and see it in a way that I probably could not understand so broadly what's going on here.

[A]

Yeah. So I think there are at least three, possibly four strands of what you might call a Trump tariff doctrine or Trump trade doctrine, or let's call it a Trump tariff doctrine, because it's not just trade. One strand is the threat of a tariff. And using the scale and the desirability of the US Market to force people to do things that are nothing to do with trade. They're problems that you want Solved. But they're nothing to do with trade. So it might be fentanyl, it might be immigration at the southern border. So that's what we saw with Canada and Mexico and the 25% tariff. And when Colombia refused to accept the plane, that was the tariff on them, because that's the tariff. And those tariffs either never get put in place or if they do, they don't last very long. So we don't need to worry too much about them. There's a second strand which is. He's talked about tariffs for revenue generation, and that's, you know, that would be a small tariff. That would be something like 3, 4, possibly 5%. I don't even think that high. I'm not a big fan of using tariffs for revenue generation. I don't think that's the purpose of the instrument. But they're going to be very difficult for them not to do, because if you put a 5% tariff on all U.S. imports, that's $180 billion. The entire tax take of the corporate tax take of the IRS is about 500 billion. So it's a big number. What happens when you put a 5% tariff on all imports? First of all, the US currency will appreciate by a couple of points. Other countries will devalue by a point or so. You're talking then about a 1%. That's not going to change the supply chain, especially into the US Market. So they're gonna, they, they are actually potentially gonna be able to do that. So you might see that across the world. That's strand two.

[C]

And they can do that because they're America. We, It'd be harder for other countries.

[A]

The only country in the world that can do that is the US the third strand, in many ways, is the most interesting one, and it's the one that we have the most ability to influence. I don't think we can influence one or two at all. And I don't think it's even worth bothering about because that'll be. Whatever that'll be. But the strand three is the interesting one, which is the president issued an executive order on day one to all executive agencies to investigate unfair trade practices in other countries. The executive agencies will report back that on April 1st. Included within that strand is also the fourth strand, which is what he announced yesterday, and the reciprocal tariff policy, which is basically saying, and one of the things we have to do with Donald Trump is take him seriously, but not literally. And we have to also understand that everything he says, however crazy it might sound, there is an underlying problem he's trying to solve. So what is the underlying problem? You have to understand, what you have to figure out is what is the underlying problem?

[C]

Problem.

[A]

The underlying problem. And he's actually even said it, he wants a level playing field. So that reciprocal tariff policy is essentially saying that where you are not open yourself to trade. So that trade openness, that first pillar of the three I was talking about, there's going to be an action against you where you are damaging competition and that's having an adverse effect on U.S. trade, where you're distorting your market and that's having an adverse effect on US Trade, where you have a regulatory barrier and that has an adverse effect. And it could be you've lowered the cost of a particular company that then competes with a US Company, or it could be you're preventing access of a US Company to your market. Europe does this in spades. You know, you have low tariffs sometimes, but you also have regulatory barriers. So you can have access, but you can't be contestable. You can't function in that market. So he'll look at that and then finally, are you protecting your property rights? So particularly intellectual property is a very important element of U.S. policy. If somebody is allowing wholesale violation of pharmaceutical patents or other US intellectual property, that whole set of things will become tarifficated. And the measure, how that tariff is calculated, I think is still to be determined. But there will be a tariff and it will be big.

[C]

It doesn't. It sounds sensible, though.

[B]

He's trying to.

[A]

So I think my career started more or less at the fall of the Berlin Wall. We did a lot of work on the privatizations in Central Eastern Europe, the former Soviet Union, Latin America, et cetera. We all made an assumption that was completely wrong. And I was also involved in the China WTO accession and the Russian WTO session. And we made a fundamentally wrong assumption, which was that if I open up trade at the border, competition, property rights, economic democracy, democracy, all of these things would follow. I didn't need to worry about it. It was the end of history. I just didn't need. That was categorically wrong. In fact, not only did it not follow, the reverse happened, actually. That's why we have oligarchs in Central and Eastern Europe and Russia and Latin America and so on, because basically the gatekeepers of the economy then dominated. They became these powerful incumbent forces. They stopped reform, they stopped, even made it worse in terms of competition and property rights and so on. And so I think what Trump is doing, in an ideal world, you Take your time machine, you go back to 1992, and you do it properly. You'd say, okay, we're going to liberalize trade, but we're also going to work on improving market conditions in countries, we're going to improve property rights in countries, we're going to generate all these gains we've actually looked at. If you do that thought experiment and you go back to 1990 and you do it properly instead of the way we did it, the difference between where we would be in 2016 and where we actually were in 2016 over that whole period of time is about $40,000 GDP per capita, which is trillions of dollars. That's what we've left on the table globally. So you can't have a time machine. You can't go back in time. So I think what Trump is doing, and I don't know whether he. I don't think that. I don't know whether the thought process is the one I've just articulated, but the effect is the same, which is to say, I'm going to go back, I'm going to put a tariff on. If you lower your distortions, you know, if you, in his words, reciprocate, you lower your tariffs, you lower your distortions, you get rid of your regulatory barriers, you start protecting US ip, whatever it is, then the tariff will come down. And I think where the game is to be played between now and April is to help articulate the metric for measurement of those things, because if we measure them properly and we get a, you know, you're more likely to get a result where the net effect of all of this is a reduction of all of those distortions across the world, which would be a great thing for the world. If you get the measurement wrong and it's a, you know, 200% tariff or something completely out of kilter, then we start getting into tariff wars, Then we start getting into massive wealth destruction on a scale that, to use Trump's language, we've never seen before. So that's the choice, right?

[C]

And so, as you observe, Trump and his first couple of months in power and what he's kind of promising.

[B]

He'S quite unique.

[C]

He's quite different from what the world's used to in recent terms. And there's almost every decision he makes causes a meltdown in Europe. It's almost this ideological, whatever Trump said, I've got to find a reason to make it bad. But Europe's. Is it cautious excitement? Do you think it's interesting? It's good for the world. How do you take it all in?

[A]

Well, I think with Trump, we have to do a few things. So I said you've got to take him seriously. Not literally. I think most people in Europe and the UK take him literally, but not seriously, which is a mistake. I think you can't react to everything he says. You have to think about what is underneath everything he is saying, because, you know, whether he knows it or not, he's trying to solve a big global problem and a big American problem, and everything you say and every suggestion you make to Trump, every policy piece of advice you put before him. If you are not dealing with the problem, if you're. If your answer is not an answer to the problem he's trying to solve, forget it. So that's the first thing. The second thing is you have to weigh his option amongst all the options. And I think, frankly, he's a business guy, he's a businessman. Business people are able to hold two totally contradictory thoughts in their heads at the same time. That's how they survive in business. You know this. He can be implacably opposed to you on one day and on the same side of the table with you the next day. That is how he operates. And I think he welcomes that kind of back and forth, provided you're trying to answer his problem. If you're not, if you're trying to answer your problem, then forget it. You're going to have a bad, bad time of it. If you're in the administration and you're trying to push your own agenda and not his agenda, then you're going to have a bad time at it. But if you're trying to answer his problem and you're trying to do it in a way that makes sense, then I think, you know, we got a shot. Now, the problem is our leaders don't think this way. They, they, as you say, they react very viscerally to, to him. They react very emotionally to him. You got to. You've got to get through the emotion and just be very analytical about this and say it. You know, what's the problem he's trying to solve? What's my solution? Have I weighed his options and what can we come together on? Because, you know, he'll be very hostile and for us, it'll be always darkest before the dawn. You know, suddenly he'll go from being very hostile to be in deal mode.

[C]

How are you for time? I've got in the moment. Great. I've got one last thing I did want to ask you about. Free ports.

[A]

Oh, yes. Okay.

[C]

Should the UK adopt them and if so, what, what will it do for us?

[A]

I think we have, and I think we, I think we have freeports and I think the government, you know, there was a, there was a moment when the government could have decided not to continue with that policy, but they decided to continue with it, which I think is the right thing to do. I think free ports, freeports are a subset of a wider group of things and those things are basically special economic zones that exist in different forms all over the world. And we've done quite a lot of work on many of them around the world. Where they work well, I think is where they are genuine. They include not just tax breaks. The freeports that don't work terribly well are just based on tax breaks. Freeports that work well or special zones that work well are tax breaks. Yes, but more importantly, regulatory reform. All the things we talked about. So if they're a microcosm and where. I think, and actually we landed on this in a way almost like Sherlock Holmes saying that once you've eliminated everything, that's impossible. Whatever you have left, however improbable, must be the truth. Trying to get reform in developing countries was impossible, possible because of all the powerful forces we mentioned. Bad as they are here, they are far worse in developing countries. So we thought reform is impossible in these countries. What is left? Can you take a area where there aren't any incumbent forces because there's nothing there? Can you take a zone and put in place the kind of environment that actually you'd want to have in the whole country? So I would test freeport rules and regulations. Is, is there something in there that I would want in the whole country? And if it is, then it's an alternative delivery mechanism for reform.

[C]

Like in my town centre in Bedford.

[A]

Well, I'm not sure what happens in your town centre.

[C]

Well, it's just a.

[A]

Dead.

[B]

It's dead.

[A]

Yeah, well, I mean there are lots of areas like that that have very low, you know, gva, very low economic, you know, activity in the UK, frankly, that you could, that you could use to generate. And so we're doing a number of these in developing countries. For example, Costa Rica had one of these things where they said to intel, we're going to give you a 20 year tax holiday. Would you want a 20 year tax holiday for everybody in the whole of the country? No, you wouldn't. So this was a bad idea and in fact it was very bad for them because the moment the 20 years ended, intel let's left and they were left with a huge hole in their budget. So they can be used to offset those powerful to deal with the problem you outlined. Well, stopping reform is bad politics. And they can be used to deal with the bad politics because there is no politics, at least when you start it. And then people also see, oh, look, this isn't Silicon Valley, this is my own country. And there's all this. This stuff happening and why is it happening? And we have lots of examples of this all over the world, actually. Anyway, we have Singapore and the Malaysia Federation. Singapore was thrown out of the Malaysia Federation. They had nothing. They now have the highest GDP per capita in the world in a short time, few decades. The uae, the Emirates, again, totally different from the surrounding regions. Massive GDP per capita. You just go to Dubai or Abu Dhabi and you feel the difference. And what these things do is when you get GDP per capita and when you get this kind of growth, you change people. They become optimistic, they become hopeful. They're thinking of how to improve the lives of themselves and their children. They're not thinking about, how do I get up in the morning? Which the danger of contraction in the way that we've seen it is it just destroys the will of people to sort of get through the day. And I think the British people are kind of at that place where they just feel like so much has been thrown at them. It's just hard to get up in the morning. And it doesn't have to be this way. And there are lots of examples all over the world where it isn't that way. And it's important to understand that we're not in this. We don't have these feelings because it's just the way of the world. We have these feelings because of what our governments have done to us in the last 25 years. Deliberately deliberate choices.

[C]

I think I'm going to carry around a copy of the GDP per Capri in my pocket, and if anyone brings up gdp, I'm going to put it in front of them. Shankar, I could have talked to you for hours. I mean, I've barely got through anything. Incredible. Hopefully we can do this again someday.

[A]

Absolutely.

[B]

But this is great.

[C]

I'm optimistic for the future because I think people want something different. I think when they're recognizing it, we just. It's like you say, we need to get a bit more angry, a bit more vocal.

[A]

I think so.

[C]

But thank you. Appreciate you. And yeah, hopefully again, sometime.

[A]

Excellent.

[C]

Thank you, everyone, for listening.